ifo DICE Report

In its coalition agreement and in the months following its formation, the current German government provided strong indications that European issues are taking centre stage on its political agenda. In principle, this is good news for European integration. But the actual steps taken in this respect will be crucial to the success of this endeavour. Ultimately, only an incentive-compatible European architecture will constitute a sustainable engine of peace and prosperity. In my assessment, the key to ascertaining this stable architecture will be the adamant insistence on three essential principles: subsidiarity, the alignment of liability and control, and unity in diversity. By and large, the political decisions taken over the last couple of years have been in line with these principles. Eurozone reforms have transformed its architecture mainly, albeit not exclusively, in the direction of the concept proposed by the German Council of Economic Experts (GCEE) as “Maastricht 2.0“ (GCEE 2015; Feld et al. 2016a and 2016c). But more recent political rhetoric at the European level has emphasized quite different themes, as shown, for instance, by the Five Presidents’ Report (Juncker et al. 2015), the subsequent White Papers and the joint Meseberg Declaration (2018) made by the German and French government. Some elements of these proposals could even jeopardize the long-term stability of the Eurozone if implemented. Instead, European policymakers should recall the three essential principles to identify the correct steps to be taken in the right order in their commendable quest for a more sustainable Eurozone.